When the Product Broke, Here’s How Heatworks CEO Jerry Callahan Steered His Startup Through the Crisis

Entrepreneur Jerry Callahan calls himself “an interested observer,” and when you look back at his journey as a startup founder and engineer, you can see exactly what he means. After a stint in the oil industry, Callahan got in the business of fixing complex hardware supply issues that he observed during his everyday life.

First, he co-founded propane cylinder company Blue Rhino after he saw how difficult it was to get empty cylinders filled up or exchanged. According to Callahan, once in the market, they went from zero to 4,000+ retail locations, including Home Depot, in one year.

Callahan had his latest lightbulb idea while installing an outdoor shower at his home. He tried to purchase an electric water heater, but was talked out of it by the sales person, since the appliances don’t last very long. He purchased one anyway, took it apart, and conceived of a tankless water heater.

“It was pretty lousy technology,” says Callahan. “I found out actually that technology hadn’t changed since 1870. I filed a few patents, hired a few engineers, and did a lot of testing over the years. Then about three years ago decided it was time to make this a full-time career and sold the business I was running at the time.”

Mt. Pleasant, South Carolina-based startup Heatworks produces a tankless electric water heater, as well as a recently-released countertop dishwasher, both aimed to change how consumers use water and electricity to move toward a more efficient, smarter home.

CEO Callahan shares more about how he went about building the hardware he envisioned, the best qualities in a leader, and the PR crisis he had to overcome after the release of his first model — and how he gained the customers trust back by listening.

How did you build the right team to develop the product you envisioned?

This is certainly one of the biggest challenges for anybody who’s starting up and growing a company. We almost have two parallel organizations. One which is very product-focused and sales-focused on the existing products… and then the other one is pure business development for licensing and/or some form of partnering.

So the challenge is to figure out which of those is going to ramp faster and which one needs more resources. Program management and business development is a lot different than firmware engineers and mechanical engineers and electrical engineers.

Ultimately, they’re all equally important.

When you released the first model of the tankless water heater, you had a bit of a PR crisis when customers had issues during installation. As CEO, how did you deal with that and continue to motivate your team?

Well, it was heartbreaking every time that we heard a consumer had a problem. We’re trying to change the water heating business, everything from the technology to the business model. So, for example, we don’t have any replacement parts that we sell — if you have any failure, we just give you a whole new unit, which nobody else in the industry does.

The biggest lesson, and yet the hardest one to hold true to, is you really have to embrace reality. You can’t put your head in the sand and go, “Wow, we just had two problems this week. I guess that’s the end of them.” You have to be prepared and plan for succeeding in that situation, whether it’s a product failure or installation problem.

Fortunately, they’re over now for us, but it was a long period of time while we were working on new products at the same time we were having to deal with existing problems. So it’s quite draining and very, very difficult to keep a team motivated, honestly, in that kind of a situation.

How did you gain back the customers’ trust and build on that to improve their experience with the product?

I think it starts with communication and being responsive. We had customer service working seven days a week and getting a lot of calls. Everybody rotated so that everybody had a weekend where they had the “hot phone.” So just listening and trying to be very conscious of what a problem it is that somebody’s water heater stopped working.

I think we built some credibility that way. We were absolutely convinced that we were going to be able to design an improved product, the Model 3. We didn’t have any doubt about that at all. And so we took all the lessons that we learned, everything from installation manuals to technology and changing the way that the pipes connect, with a lot of feedback from the field.

In your opinion, what makes a great leader?

The two qualities of leadership that I’ve always found to be true are: one, you have to have the confidence to make high-risk-reward decisions. Otherwise, it’s difficult to succeed. And that requires a very strong, very robust self-auditing process about making sure that you understand why outcomes were what they were. Sometimes we’re just lucky, and that’s okay to be lucky, but you can’t necessarily take credit for being lucky. You can take credit for making good, fact-based decisions.

The second quality, having said that, is that the success of the decisions that I make is literally 100 percent dependent on creative reworking by the team — both internal and external. So it’s like, “Here’s where we want to go, here’s how I think we ought to get there. What do you guys think?” And sometimes, especially in the times of the Model 1, there was a lot of doubt.

High-risk-reward, which implies failure, and then actually ready the team, rework and give really solid input. You have to be very clear to people.